Detailed industry report analyzing one of the most relevant and controversial issues of state shareholders in the gambling industry - updated and revised 2nd edition (2009).

Four years ago we published our first privatisation study, which was very well received. In the past 12 months, as many new developments sparked increased interest in the market, more and more clients have asked for an updated study.

In our first report broke new ground by discussing potential privatisation of gambling operations; by now the situation has developed further and shows additional issues:

- Growing relevance of key drivers for privatisations – Ever increasing legal pressure (e.g., in most EU states), increasing liberalisation (e.g., in France), and/or tight state budgets (e.g., in the US) are putting pressure on state owners to evaluate a potential privatisation of their gambling assets.

- Drastic increase of likelihood that state gambling operations will be privatised soon – The number of experts surveyed who believe
that some of the top state lotteries/operators will be privatised in the coming 2-3 years nearly doubled compared to MECN’s 2005 analysis and survey.

- Several privatisations are currently being considered – In addition to perennial “hot” privatisations, such as the UK Tote and Milli Piyango, many other ones are under discussion. According to our survey, several potential privatisations are expected to be at the top of the list: Some Australian and US lotteries/operators, the Hungarian State Lottery, and La Française des Jeux, to name just a few.

- Billions are on the table – Some of the lotteries/operators that are expected to be privatised in the near future are valued in the double-digit billion dollar range.

- Privatisation is no longer limited to only one method – In the future privatisation will not necessarily mean a change in ownership of shares, …. In addition, alternative forms, such as long-term licenses that transfer responsibility for operations to private companies, are also possible.

The report includes:

- Analysis of selected potential privatisations and overview of state operators most likely to be privatised in the near future.

- Case studies of already privatised lotteries/operators.

- Valuation of relevant state-controlled gambling operators.

- Discussion of advantages, disadvantages, and options for privatisation of state-owned gambling operations.

- Many results are based on a survey of more than 50 industry experts, including representatives from state lotteries, private online operators, and financial investors.

- In total, the second edition has nearly 100 pages and 36 graphs/exhibits.

- The report is co-authored by many renowned experts, among them the investment bank Sal. Oppenheim.
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2 Privatisation of state gambling operations – status worldwide2.1 Introduction to privatisations2.1.1 Definition of privatisation in the gambling market2.1.2 From state to private ownership – a step-by-step process2.1.3 Number of privatisations expected to increase2.1.4 Liberalisation not equal to privatisation2.1.5 Different views of management and shareholders2.2 Developments driving privatisations in the gambling market2.2.1 Increased legal and political pressure on existing gambling regulations2.2.2 Tighter state budgets due to economic crises2.2.3 Unlicensed Internet offerings are still successful2.3 Key regions and sectors for privatisation2.4 Overview of different types of state-controlled gambling operators

3 Selected potential privatisations in the near future3.1 La Française des Jeux3.1.1 Privatisation in view of liberalisation3.1.2 The privatisation story so far3.2 Privatising the Turkish lottery Milli Piyango – a never- ending story?3.2.1 A seemingly endless privatisation process3.2.2 Company value of Milli Piyango3.2.3 Allocation/split of sales among licensee, players, and state after the privatisation3.2.4 Value of the 10-year license – was the starting price too high?3.2.5 Overview of bidders3.2.6 The main principles of the license and regulations3.2.7 Company profile of Milli Piyango – the national lottery3.3 UK tote – planned for a long time and hopefully implemented soon3.4 US lotteries – many would like a privatisation, but will it happen?3.4.1 Federal lottery statutes – the basis for lottery operations in the US3.4.2 The opinion of the US Department of Justice and the reactions of the US lotteries3.4.3 Massachusetts Lottery3.4.4 California Lottery3.4.5 Texas Lottery3.4.6 Illinois Lottery3.4.7 Others3.5 Planned privatisations Down Under - Australia3.5.1 New South Wales Lottery3.5.2 Tote Tasmania3.5.3 Victoria betting3.6 Lutrija Crne Gore - Montenegro3.7 Loteria Electronica - Puerto Rico3.8 Hungarian State Lottery3.9 Others

5 Disadvantages of privatisation5.1 Increase in negative social externalities of gambling5.1.1 Does privatisation lead to market expansion?5.1.2 Does privatisation lead to increased problematic gambling?5.1.3 Incentive schemes of private gambling operators - focus on sales and profit?5.2 Lottery - A need for a natural monopoly?5.3 Guarantee of a basic supply of gambling products

6 Possible options for privatisation6.1 Overview of alternative modes of sale6.2 Placing shares on the capital market6.3 Trade sale to a strategic or financial investor6.4 If selling to private companies – which buyers would be best suited?6.5 Sale to other/foreign state-controlled gambling operators6.6 Sale to other state-controlled bodies6.7 51% vs. 49% - how much to sell?